XPO's Jacobs maps new route for Con-way Must read on strategy.
'In a note to investors, Larkin said an economy service would address two-thirds of the LTL market Con-way Freight currently doesn’t pursue. An influx of economy shipments, as well as more freight from European and other North American customers of XPO, would be a boon to the company.'
William B. Cassidy, Senior Editor | Oct 09, 2015 11:38AM EDT
MEMPHIS — The route trucking and logistics company Con-way will take after its acquisition by XPO Logistics is becoming clearer. Con-way Freight, the second-largest U.S. less-than-truckload carrier, will look more like its largest competitor, FedEx Freight, offering both premium or priority and economy services, XPO Chairman and CEO Bradley S. Jacobs said Oct. 8.
More LTL freight will move in trans-Atlantic distribution channels, and more multinational customers of Con-way in North America and the former Norbert Dentressangle, now XPO Logistics, in Europe will use XPO’s asset-based distribution services on both continents, Jacobs said during a keynote address at the JOC Inland Distribution Conference here.
Jacobs left the podium during his speech to roam the audience, answering a broad range of questions about XPO’s long-term growth and acquisition strategy and the future of $5.8 billion Con-way, which XPO plans to purchase for $3 billion. The acquisition, which will make XPO one of the largest distributors of palletized freight in North America and Europe, is expected to close this month.
Many questions at the conference focused on the future of $3.6 billion Con-way Freight. Jacobs said the company will be reconfigured to handle both next-day and two-day service and an economy service. An economy-style service would greatly extend the carrier’s reach into the $35 billion LTL market, according to transportation investment analyst John G. Larkin of Stifel.
In a note to investors, Larkin said an economy service would address two-thirds of the LTL market Con-way Freight currently doesn’t pursue. An influx of economy shipments, as well as more freight from European and other North American customers of XPO, would be a boon to the company. Shipments per day dropped 0.9 percent at Con-way Freight in 2014.
The launch of an economy service will require some reconfiguration of the company’s LTL terminal network. When FedEx Freight redesigned its LTL network to offer universal priority and economy service in 2011, it made big structural changes, cutting 100 terminals. However, FedEx also had to integrate two separate LTL subsidiary networks, a challenge XPO will not face.
As of Dec. 31, 2014, Con-way Freight operated 297 freight service centers, of which 146 were owned and 151 were leased, according to Con-way’s latest annual report. Owned service centers accounted for 69 percent of its LTL terminal door capacity. Con-way Freight owned 9,500 tractors and 25,500 trailers, including tractors held under lease agreements.
The Con-way name will be retired after 32 years, and all of the company’s subsidiaries, which also include Menlo Logistics and Con-way Truckload, will be rebranded as XPO Logistics. ““We can’t have 15 brands, we have to be one unified company globally,” Jacobs told a shipper who asked why XPO would retire the Con-way brand. “We’ve retired lots of great brands,” he said.
Jacobs said is he is not concerned about attempts to unionize XPO. Unions “have made runs at my companies before,” he said, referring to attempts to organize United Waste Systems and United Rentals, companies he previously created, built up and sold. There’s some “exposure” at Con-way, he admitted, where the Teamsters have a long-running organizing campaign.
Jacobs sees real opportunity to leverage Con-way’s North American network and the LTL operations of XPO Logistics in Europe. Several European retail customers of the former Norbert Dentressangle, which XPO acquired for $3.5 billion this summer, are expanding U.S. operations, and they can benefit from Con-way’s distribution and logistics network.
There’s also opportunity to move more less-than-containerload freight between Europe and the U.S., using LTL and “groupage” pallet distribution networks on both sides of the Atlantic. "Our LTL people on both sides are already swapping best practices," Jacobs said.
Menlo Logistics also will augment XPO’s existing contract logistics business, especially in Europe, where the logistics company is expanding its seven-country logistics and distribution network. The future of Con-way Truckload is less clear, though reports that it may be sold are premature. Jacobs said he has already received three enquiries about purchasing the truckload unit. “We don’t even own it yet,” he said. As a public company, XPO will review and evaluate offers, he said, but selling Con-way Truckload is not high on XPO’s “to-do” list.
“There’s a lot of synergies between our brokerage operations and Con-way Truckload, a lot of opportunity to fill empty trailers,” he said.
Contact William B. Cassidy at bill.cassidy@ihs.com and follow him on Twitter: @wbcassidy_joc
https://www.joc.com/international-logistics/logistics-providers/xpos-jacobs-maps-new-route-con-way_20151009.html